Chinese media have repeatedly reported house price drops in some cities, but it will take time to judge whether the property bubble has burst or not.

Eye on Hong Kong

China Merchants Bank Co. Ltd. (CMB), one of the most profitable banks in the mainland, inked a deal with the Hong Kong-based Wing Lung Bank Ltd. to buy the latter's 53.1 percent of stocks worth about 17.2 billion yuan ($2.46 billion).

CMB defeated other bidders and agreed to offer HK$156.50 a share, valuing 3.1 times of the first quarter price/book ratio of Wing Lung Bank.

Hong Kong is long viewed by mainland banks as a gateway for overseas investment. Among the six Hong Kong-listed mainland banks, CMB's performance in Hong Kong is the weakest with only one outlet. It is allowed to do full banking services in Hong Kong, but its business on the island is not satisfactory due to shortages of banking talents and networks.

The Wing Lung Bank, though a small lender in the financial hub, has 35 outlets and is well managed, but has little presence in the mainland. Wing Lung Bank shares have soared nearly 80 percent to HK$147.4 on May 30 since mid-March, when rumors went around that its largest holder was seeking a potential buyer. In a public notice to all shareholders in early June, Wing Lung Bank introduced CMB as "the best strategic development direction for the bank." Simultaneously, Standard & Poor's, a leading ratings firm, downgraded CMB into credit watch with negative implication, citing its lack of experience in the overseas market.

CMB will make a general buyout offer to Wing Lung's minority shareholders, as required under Hong Kong rules.

A Blessing or Curse?

Investors held controversial opinions on how much the newly restructured China Unicom Ltd. (SH.600050) is really worth.

A total of 1.092 billion yuan ($156 million) flew into China Unicom yuan-denominated A shares in three days before it halted trading on May 23, gambling on the bright future of China Unicom. However, the company's share lost 10.3 percent of its value in two trading days after it announced the restructure details on June 3.

On June 3, China Unicom announced that it would sell a package of its CDMA business valued at 110 billion yuan ($15.7 billion) to China Telecom Corp. In the meantime, China Unicom and China Netcom Group Corp. Ltd. are planning a merger. After the restructuring, China Unicom will get the license of developing WCDMA business, one of the 3G mobile phone standards.

The Galaxy Securities Co. Ltd. issued a report, arguing China Unicom's CDMA network was sold at a proper price, and the merger with China Netcom would strengthen its presence in the fixed-line service. Thus the report believed China Unicom's A share price should be priced at no less than 11.69 yuan ($1.67).

But Guodu Securities Co. Ltd. believed in the contrary. It contended that China Netcom's performance in fixed-line business is met with tremendous challenges, as well as deteriorating profit growth. Guodu Securities alleged the revenue growth rate of the new China Unicom would fall to 5 percent from the current 20 percent.

Putting Environment First

Chinese companies must take environmental protection into serious consideration before they win public support.

China's Ministry of Environmental Protection vetoed 10 companies' applications for public listing in 2007 due to their deficiency in environmental protection, according to Sina.com, one of the leading portals in the mainland. The total applications were valued at 8.4 billion yuan ($1.2 billion).

Additionally, a total of 1.5 trillion yuan ($214 billion) worth of projects were canceled or suspended in 2007, as they were involved in projects of high energy-consumption and high pollution.

The ministry rang an alarm bell for companies, and urged them to take environmentally friendly measures.

Futures Trading Blossomed

China's futures market witnessed active trading in May, led by sharp increase in trading volume of zinc, and farm products including sugar, soybean and corn, according to China Futures Association (CFA).

Trading volume hit 5 trillion yuan ($714 billion), representing an increase of 88 percent over the same period last year.

Analysts attributed the increase to an improving domestic market environment, as well as fluctuating domestic farm product prices caused by surging grain prices in the world market and the snow disaster in the country earlier this year.

Numbers of the Week

7%

PetroChina, China's largest oil and gas producer, vowed to increase monthly diesel output by 7 percent in June month on month, in response to the fuel shortage partly caused by the May 12 Wenchuan earthquake relief and restoration work.

96th

ChinaAMC Large-cap Select Fund, the best-performing mutual fund in 2007, only ranked 96th in May, and lost over 20 percent of its value since its peak in January.